Different Ways To Invest In Early-Stage Companies

From crowdfunding to angel investors and EIS funds there are lots of different ways to invest in small

up-and-coming UK businesses. There are important considerations to make before investing in any of these options. Here we will look at the different ways you can invest in early-stage companies.

What Is An Angel Investor?

An angel investor provides financial support to entrepreneurs and early start-up businesses. The individual investor usually receives equity or a stake of ownership in the Company in exchange. An angel investor tends to invest their own personal funds into new business ventures. Investments can vary from a few thousand to several million pounds. There is certainly no shortage of small businesses that need financial support and angel investors keep their fingers on the pulse to find the next great business to invest in.

In addition to the financial support provided by an angel investor they often also bring expertise, mentorship and connections to the early-stage companies they invest in. Angel investors tend to take on a higher level of risk compared to other investors but in return for the high risk taken, there is the potential for significant return.

Consider Spreading Your Investment

One of the hard and fast rules of good investing is that a diversified portfolio reduces the risk of loss across your investments. It takes time to find and research individual companies to invest in, and not all of them will be the perfect investment for you. Concentrating all your efforts on one business leaves you exposed to higher risks. However, there are alternative ways to invest. One of the most popular alternatives is Enterprise Investment Schemes (EIS).

What Are EIS Funds?

An EIS is a government-backed investment fund where investments are spread over several different start-up businesses. EIS funds offer investors a way to diversify their portfolio, and as a government-backed scheme, there are potential tax benefits available to investors for this type of investment too. Funds are typically managed by professional fund managers who have expertise with early-stage companies. Oxford Capital are a great example of this as they have over 50 years of experience and work with high-net-worth individuals to provide EIS investment opportunities.

Other Alternative Investments

There are other types of non-traditional investments you could consider. These tend to be things which aren’t stocks and bonds. For example, real estate, precious metals, natural resources or collectables. Investing in alternatives like these can be beneficial because you avoid the risks associated with more traditional investment strategies. Market fluctuations and demand can affect the value of some of these investments and

it can take many years, or even decades, to see a return. However, adding different types of investment ultimately leads to a more diverse portfolio which should mitigate risk.

Crowdfunding

Crowdfunding has become a popular way for some businesses and entrepreneurs to raise capital. It may be something you have done yourself or know someone who has. One thing worth remembering is that some of the start-ups looking to raise funds this way may have not been able to secure funding through more traditional routes. This could be, but not necessarily always is a red flag. You will need to conduct thorough research to ensure that a crowdfunding investment is a sound idea. Most entrepreneurs would be happy to have a meeting or share their business plan with the right investor.

In Summary

Investing in early-stage companies can be exciting. It’s great to be involved from the start and you can even help steer the Company to success. But it’s not without risk. You need to find out as much as you can and whether the time taken to see a return on your initial investment is right for you. It is always worth looking at how to make the most of the expertise of others and ways to reduce the risk to your investments.